Key Points
- Food & Staples Retailing Is on the Verge of New Highs
- “Defensive” Sectors are Getting Stronger on an Absolute and Relative Basis
- Technology is Holding On, Discretionary Is Fading
- Cyclicals are Stuck Below Resistance after “False Moves”
- Health Care Is a Sector to Watch
Chart in Focus
One theme that has become clearer this week is that “defensive” groups are making a run. Drilling deeper into the Consumer Staples sector, we can see that the S&P 500 Food & Staples Retailing Index is on the cusp of a new high after holding support at the rising 50-day moving average. Above 650, odds favor a continuation to the upside.
The relative trend is also improving, trading above the 50-day moving average and on the verge of breaking from the consolidation.
Visiting the Sector Relatives
All the charts below look at the sectors of the S&P 500 on an absolute basis (top panel) and relative to the S&P 500 (bottom panel) to get a sense of the leaders, laggards, and shifts in trends. We include the 50-day moving average on each.
Information Technology
The Technology sector traded to a new high yesterday before reversing to close near the day’s low. From a trend perspective, the group remains bullish. The first support is at the 2,900 level, and stronger support is near 2,810. The rising 50-day moving average sits between these two support levels, solidifying this zone as important should a pullback deepen.
Relative to the S&P 500
Consumer Discretionary
The Consumer Discretionary sector is testing the rising 50-day moving average as it sits just above short-term price support at the 1,560 level. Losing support sets the stage for a swift move down to the summer consolidation zone around 1,450.
Relative to the S&P 500
Communication Services
The Communication Services sector is fighting hard to hold support near the 265 level but remains below the 50-day moving average. For now, the trend is neutral, and we want to see the moving average retaken to have confidence that the bulls are taking control.
Relative to the S&P 500
Materials
Materials found support at the rising 50-day moving average and are now testing the underside of the breakout level after failing to hold in November. Until this level is overcome, the trend is neutral, and we are content to let the bulls and the bears fight to establish a clearer trend.
Relative to the S&P 500
Financials
Financials remain below the 50-day moving average and resistance at the breakout level that failed to hold as support. We could make the case that the current consolidation has been playing out with a series of higher lows, but until the moving average and resistance are overcome, we are in the neutral camp on this absolute trend.
Relative to the S&P 500
Industrials
The Industrial sector also remains below the breakout level as it tries to hold the 50-day moving average. As with the other cyclical sectors, the trend is best described as neutral on an absolute basis.
Relative to the S&P 500
However, the relative trend remains bearish. The ratio is trading below resistance and the declining 50-day moving average. These are levels that must be overcome before we can make the case that the bearish trend is reversing.
Energy
The Energy sector continues to battle to regain the breakout level and the 50-day moving average. The trend here remains neutral until these levels are overcome.
Relative to the S&P 500
Consumer Staples
Last week we wrote that odds favored a run to new highs for Consumer Staples, and they wasted little time in making that run. Support is near the 756 level, above the rising 50-day moving average, and the trend is bullish above that support level.
Relative to the S&P 500
Real Estate
The Real Estate sector also traded to new highs after holding important support and the 50-day moving average. Above the breakout level, the path of least resistance is to the upside.
Relative to the S&P 500
Utilities
Utilities are another defensive sector that has traded to a new high in the past week. The 50-day moving average has made the turn to the upside once again as well. The 345 level remains important support, and the bulls are in control above this mark.
Relative to the S&P 500
Health Care
Health Care has broken above short-term resistance after staging a rebound from the 50-day moving average, which is now turning higher. The group is now in a position to attack the summer highs, an event that is probable if the 1,550 level holds.
Relative to the S&P 500
Take-Aways:
The S&P 500 is trading near record levels, but it is interesting to note that the “defensive” sectors have been exhibiting the most strength of late. This is arguably not the type of leadership that equity bulls want to see. Technology is holding on to a leadership position, but Discretionary is breaking down. The “cyclical” groups have rallied in the near term, but they must overcome resistance before we can make the case that bullish trends are reasserting.
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